Nicole Fisher is the President and CEO at HHR Strategies, a health care and human rights focused advising firm. Additionally, she is a Senior Policy Advisor and expert on health economic analyses mainly focusing on Medicare, Medicaid and health reform, specifically as they impact vulnerable populations. Nicole runs a Health Innovation and Policy page at Forbes.com highlighting and advising companies, ideas and people that are changing the health care landscape and curates a monthly health dinner series: Chicago HealthCare Dinners. She is also currently pursuing her PhD at the University of North Carolina in the Health Policy and Management Department. Her writing has appeared in other publications such as Health Affairs, Wall Street Journal, Washington Post, Centers for Medicare & Medicaid Services Journal, Wright on Health, The Health Care Blog and Health Services Research, and her talks can be found on the United Nations website. Before pursuing her PhD in health policy, Nicole earned her Master’s degree in Public Policy from the University of Chicago and her undergraduate degree from the University of Missouri. Her health care and policy work at those institutions had an emphasis on underserved populations, women's and children’s issues. She presides on several Boards for domestic and international health organizations and frequently speaks on health reform, innovation and human rights.

CO-OP Health Plans A Fiscal Cliff Victim

WASHINGTON, DC - MARCH 26: A person carries an American flag while marching in favor of the Patient Protection and Affordable Care Act in front of the U.S. Supreme Court on March 26, 2012 in Washington, DC. Today the high court, which has set aside six hours over three days, will hear arguments over the constitutionality President Barack Obama's Patient Protection and Affordable Care Act. (Image credit: Getty Images North America via @daylife)

Under the Patient Protection and Affordable Care Act (ACA), the Secretary of Health and Human Services (HHS) must establish a Consumer Operated and Oriented Plan (CO-OP) in every state to compete as a nonprofit-like entity against health care insurers. The ACA originally allocated the Secretary of HHS a $6 billion budget for the new health insurers, although Congress later reduced that to $3.8 billion, for establishing, at minimum, one CO-OP in each state. If additional funds are available, there may be multiple CO-OPs financed in any given state. However, that seems all but impossible now that under the fiscal cliff passed by Congress on January 1, more than $1.4 billion in additional funding was cut.

To date, there are no state-level CO-OPs that are fully funded or operational, despite the federal government already awarding more than $2 billion worth of loans to CO-OPs in 24 states. Additionally, despite the Centers for Medicare and Medicaid Services (CMS) requiring that a state indicate it is able to repay its CO-OP loan, one estimate indicates that as many as 40 percent of CO-OPs will default on the planning loans and 35 percent will default on the solvency loans. It is further projected that CO-OPs will, at minimum, cost the federal government around $10 million annually to administer once established.

If successful in creation and sustainability, CO-OPs will differ from typical individual and small business insurance providers in two significant ways. First, members in the CO-OP will select their own board of directors from other enrolled members. Second, any government funding or profits earned must be used to lower premiums, expand benefits or expand enrollment. ACA explicitly states, “No portion of the funds made available by any loan or grant may be used for carrying on propaganda, or otherwise attempting, to influence legislation or for marketing.”

By regulation, CO-OPs should reflect private, non-profit insurance company models. An organization can apply to become a CO-OP if it qualifies as a non-profit organization in its respective state, plans to have enrollees representing the majority of the board of directors, limits “insurance industry involvement and interference” and maintains “strong consumer focus.” Although this definition is vague, HHS has made it clear that organizations which were health care insurance providers as of July 16, 2009 or have been politically sponsored are automatically disqualified as CO-OPs.

Although not specified in the ACA, HHS has determined that CO-OPs must meet all ACA insurance standards, such as selecting benchmark plans for essential health benefits, and be ready to sell in state insurance exchange markets by January 1, 2014. CO-OPs must also comply with state laws regarding correct licensing (applications due in October of 2013), paying providers in a timely manner, review of premium rates, and proper “form filing rules.” If a state does not voluntarily create a CO-OP by 2014, Secretary Sebelius may use loan or grant money to expand a CO-OP from another state to the state without a CO-OP program.

The ACA also requires that, in addition to the CO-OP boards, an unpaid federal CO-OP Advisory Board, made up of 15 members, be appointed by the Comptroller General of the United States and serve until December 31, 2015. The federal Advisory Board’s purpose is to recommend to the Secretary of HHS which organizations should receive federal loan and grant money to fund a CO-OP. However, the job of the Advisory Board ends there, as there are presently no guidelines on how CO-OPs will be evaluated, monitored or controlled.

Moreover, the member-selected board of directors creates more financial questions than it answers. Nowhere in ACA does it regulate if state-level CO-OPs are able to use profits to pay its board of directors or if those members must serve on a volunteer basis. It does state that any profits must be used to better the insurance organization, but does not specify if that is related to the board. CMS has since specified that CO-OPs are merely not prohibited from compensating their board of directors.

As though structural concerns are not enough, the New York Times reported that CO-OPs are predicted to need “25,000 members to be financially viable and at least 500,000 members to negotiate effectively with health care providers.” This could be difficult given that currently, the majority of the general public is not familiar with CO-OPs because the programs are not nation-wide. Because CO-OPs are only available in a few states, CO-OPs may not have the popularity to compete equally in state-based exchanges beginning in January of 2014. Likewise, with a small initial consumer base, CO-OPs may struggle to obtain a large network of providers or remain financially sustainable. The success of CO-OPs will depend on consumer confidence, affordability, and health care plan benefits.

There are many concerns from organizers and state policymakers about establishing CO-OPs due to the number of lingering questions, lack of an established CO-OP model to build from, and quickly approaching deadlines. Because of these concerns and delays, it is safe to assume very few CO-OPs will be operating within the HHS mandated timeline to compete against other insurers in the health insurance exchanges.

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The CO-OP concept was a fall back position for those in DC that really wanted a public option in the ACA, and I have always questioned the long-term viability of the CO-OP business model. If any “profits” are, by law, supposed to go towards lowering premiums or enhancing benefits, it seems that adverse selection is a real concern. I also question whether these CO-OPs – which will be rookie competitors on a field with more experienced opponents – can compete with the marketing and network muscle of the well-funded Blues.

(That being said, I can see the possibility of CO-OPs succeeding in those markets -like my beloved VT – where there is a paucity of existing carriers. But that is a minority of states.)

The Ithaca Health Alliance created a minor medical co-op that covered members for $100/YEAR for 12 categories of common emergency (broken bones, stitches, etc). The system grew gradually and carefully. Upon the surplus a member-owned free clinic has been built. My book “Health Democracy” explains how to start such local plans: http://www.paulglover.org/hdbook.html